Lessons for bidders in public procurement: sub-contracting and joint ventures

Two judgments published in 2023 set out valuable lessons for those interested in bidding for public procurement opportunities when thinking about whether to participate as a sub-contractor and how to structure bids involving multiple parties.

In International Game Technology PLC & Ors v Gambling Commission [2023] EWHC 1961 (TCC) (“the IGT case”) the Court resolved a long-standing open question about the ability of sub-contractors to bring procurement claims and in Teleperformance Contact Limited v The Secretary of State for the Home Department [2023] EWHC 2481 (TCC) (“the Teleperformance case”) the Court considered whether losses that would be suffered by associated companies were material to the adequacy of damages as a remedy for the purposes of the automatic suspension. 

Sub-contractor “standing”

The IGT case arose out of the concession opportunity advertised by the Gambling Commission for an operator to run the national lottery. The then incumbent provider, Camelot, submitted a tender supported by a number of sub-contractors. Some of the sub-contractors were named in the tender as “Key Sub-contractors” and others were identified in the bid but not defined in that way. 

Camelot was unsuccessful in the tender process and issued a claim alleging various flaws in the procurement and evaluation. Several of the sub-contractors involved in the Camelot bid, including two identified as Key Subcontractors also issued claims, making broadly similar allegations. There was no dispute that Camelot was entitled to bring a claim under the regulations (note that in the IGT case the applicable legal regime was the Concessions Contracts Regulations 2016 (“CCR”) however the principle is equally applicable to procurements conducted under the Public Contracts Regulations 2015 (“PCR”)) however Camelot settled its claim at a relatively early stage (following the purchase of Camelot’s parent company by the winning bidder in the procurement: Allwyn). This left only sub-contractors with live claims in respect of the procurement. The Court elected to carve out the question of whether those sub-contractors had “standing” (i.e. were eligible) to bring a claim into a preliminary issue trial focused solely on that point. Regulation 52 of the CCR states that a breach of the duty owed by contracting authorities to economic operators “is actionable by any economic operator which, in consequence, suffers, or risks suffering loss or damage” and, as such, appears at face value to permit claims to be brought where the claimant can show that the action of a contracting authority caused them to suffer loss. 

However, the Judge (Lord Justice Coulson sitting as a High Court Judge) conducted a thorough analysis of the legal position under EU law concluding that the EU Remedies Directive, which the remedies under the CCR and PCR give effect to, did not impose an obligation to grant standing to anyone other than unsuccessful bidders for public contracts. This was subject to one limited exception in that it is established in EU law that it is not necessary to submit a doomed tender simply to obtain standing to challenge discriminatory procurement documents; in that situation an economic operator that would have bid but for the discriminatory provisions should instead challenge at the earliest possible stage after the procurement documents are published. 

The Judge then considered the domestic position and whether the UK had gone further than required by the EU Remedies Directive so as to grant standing to a wider pool of economic operators. Having worked through the run of EU Directives and associated UK Regulations culminating in the CCR the Judge concluded that there was unequivocally no suggestion that the UK intended to enhance or expand the pool of those with the necessary standing to bring a procurement challenge. Accordingly, the claimants left following the withdrawal of Camelot had no standing – only unsuccessful bidders for public contracts are able to access the remedies; their sub-contractors are not.

The key point then for those interested in bidding for public contracts to take away is that it is, generally speaking, only the prime bidder that will be entitled to bring a claim in the event of a flawed process. Those participating in procurements as sub-contractors would be well advised to understand the limitations on their ability to claim and, where they are contributing substantial resource and expertise to the bid may wish to consider whether an alternative structure (for example the formation of a consortium or joint venture) would protect their interests more than sub-contracting.

Losses of associated companies

In the Teleperformance case the unsuccessful bidder, TCL, was a special purpose vehicle formed for the sole purpose of bidding for the contract (and ultimately contracting with the contracting authority if successful). TCL was part of the Teleperformance group, a multi-national corporation, headquartered in France and employing over 400,000 individuals. The contract in question was for visa and citizenship application services and would require the successful bidder to deliver across geographical lots covering very wide areas (Lot 1 for example required the provider to deliver the people and infrastructure for visa application processing in Africa and the Middle East). TCL won lot 5 (covering the UK) but lost the other 4 lots (covering, broadly speaking, most of the rest of the world). Had TCL won all the lots as it had hoped to it would have delivered through local sister entities who would manage on the ground delivery (for example entering into leases, hiring local staff and so on). 

TCL conceded that the losses that would be suffered by its fellow group companies as a result of TCL failing to obtain the contract could not be claimed as its own losses in the case. However, TCL argued that those losses could be taken into account by the Court in deciding that damages would not be an adequate remedy for the purposes of deciding whether or not to lift the automatic suspension.

The Court concluded that the losses that would be suffered by the wider group were not relevant to the adequacy of damages. Operating a business by way of special purpose vehicles comes with advantages and disadvantages and one disadvantage is that losses which might otherwise be sustained by the unsuccessful bidder in a procurement (and so recoverable in the event of a breach and potentially relevant to the adequacy of damages) will instead be incurred by a third party entity with no right of action to challenge the breach.

The point here then is that, again, the way in which a bidding entity is structured can make a material difference to the remedies available in the event a procurement is alleged to have gone wrong. If, at a subsequent trial, TCL were to be successful in proving that the procurement was conducted unlawfully and in a way that meant TCL did not win when it otherwise would have done it will not be able to recover damages reflecting the full value of the losses felt throughout the group. As the Court noted – it may be that the benefits of using an SPV structure outweigh that disadvantage however this is a point bidders should be aware of when considering competing for public contracts.

Lessons for bidders

There are several ways in which a supplier may participate in a public procurement process but as these two judgments show the choice of how to structure the bidding entity may have repercussions come the end of the process. Other than in exceptional circumstances it is now clear that a sub-contractor will not have standing to challenge the outcome of a procurement. In addition, where an SPV is created and used to bid, certain types of loss may not be recoverable in the event a damages claim becomes necessary. Those interested in bidding for public sector contracts should therefore ensure that they consider options such as forming consortia at an early stage. 

Should you have any questions about the remedies available in public procurement and limitations on claiming those remedies our team of procurement law experts are here to assist.

If you would like to get in touch, please email Kyle Duggan, or you can visit our Procurement page here.